😨 Insecure Americans

Consumer confidence fell in the U.S. in April. What about you? May 2, 2024 | Peel #701 Silver Banana goes to... [Interactive Brokers. ](=) In this issue of the Peel: - 📔 JPow kept rates steady but slowed its balance sheet runoff…? - 🏦 NYCB lost more money than expected, then their stock went up. - 😱 Consumer confidence fell in the U.S. in April. What about you? Market Snapshot 📸 Banana Bits 🍌 - Despite doing nothing, Powell’s ruling out of another rate hike was the [good news we needed]() to get some sleep tonight - Protests around American college campuses are [eerily reminiscent of the summer of ‘68]() (apparently) - Pullbacks in spending [aren’t limited to just Starbucks]( (more below) - An [updated cheat sheet]( from our favorite chart provider attempts to assess everything, everywhere, all at… the same time What interest rate does your broker pay? = Earn Market Rate Interest on Your Instantly Available Cash Balances. 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Macro Monkey Says 🐒 JPow Speaks Standing on business can roughly be defined as accepting your role and responsibility and pursuing that end no matter what. Or, it could also be defined as what Fed Chair Jerome “JPow” Powell did on Wednesday. Unfortunately for us, however, the “business” JPow is standing on is all keeping you poor, homeless, and your stonks low. The all-time least anticipated Fed meeting went exactly how you’d think it would—boring, as expected, and smelling like a combination of hairspray, your grandma’s house, and the FOMC’s usual bullsh*t. Let’s get into it. What Happened? Remember this? Well, the Fed made the same changes to this as I did to my sink full of dishes yesterday—absolutely nothing. Rates were maintained in their current range of 5.25%-5.5%. JPow and the FOMC gang spent most of the day acknowledging that the economy had made a “lack of further progress” towards lower inflation. So, rates remain at their highest level in two decades, and while that sucks for anyone trying to buy a house, get a job in banking, or exist on an income that’s not solely interest payments, it also means the economy is still too strong for rate cuts. But, the one thing JPow did do was throw a bone at the U.S. treasury. [Source]( The Fed’s balance sheet is a tool of monetary policy that gets a helluva lot less attention than interest rates. The important thing to know for today is that the assets of the Fed include things like treasuries and other low-risk securities it has purchased. The Fed more than doubled the size of its balance sheet in response to the pandemic, similar to how a lot of us doubled our waistlines at the same time. But at the same time that the Fed started raising rates, the balance sheet explosion stopped too. In fact, it did more than stop—it fully turned around. The Fed has been letting assets like treasuries and MBS (mortgage-backed securities) roll off the balance sheet without reinvestment, thus causing the decline you see in the above chart. Originally, JPow and the gang were allowing $95bn in roll-offs per month—$60bn in treasuries and $35bn in MBS. And yesterday, the big news came from a decision beginning next month to reduce treasury roll-offs to $25bn, or $60bn total. [Source]() This announcement led to a brief but dramatic drop in treasury yields yesterday. See, when the Fed is buying assets, that’s an increase in liquidity for that market. When the Fed is rolling assets off, it’s not necessarily a decrease in liquidity, but a lack of continuing to add liquidity. Stay with me here—so, when the Fed slows the pace of roll-offs, that’s a reduction in the decrease of liquidity. And those of us who passed 4th grade know, a negative times a negative is a positive. Does any of this make sense? Basically, this means that the decrease in liquidity felt in treasury markets will pull back marginally. None of this matters to you unless you happen to be Janet Yellen (in which case—what’s good JYell, that haircut def doesn’t make you look like the muppet version of a founding father!) The Takeaway? The blank I’m drawing from this one comes down to the options the Fed had in deciding how to slow their balance sheet reduction process. See how the reduction in treasury runoffs caused yields to fall? The same thing would’ve happened to mortgage rates if JPow decided to instead slow the reduction in MBS holdings, but, see again, JPow wants you homeless. In theory, a reduction in treasury yields should lead to a reduction in mortgage rates, as 10 and 30-year treasury rates tend to be the starting point for most home loan rate calculations. But we’ve learned all too well over the past few years that companies really don’t like passing savings on to customers. We’ll talk more about the mechanics of the balance sheet runoff soon because I promise it’s just as fun and exciting as it sounds. Maybe JPow’s standing on the balance sheet instead of business… guess we’ll find out. What's Ripe 🤩 New York Community Bancorp (NYCB) 📈28.3% - Like how no one cares when you go a whole day without peeing on the floor, but it’s the best day ever when my dog does it. Expectations are everything. - The stock that’s down >75% from August popped on non-horrendous earnings. Losses of $0.25/sh doubled expectations, and sales missed by 18.8%. - The only non-eye-gouging part of the report was the CEO saying the bank is on a 2 year path to profitability. But, when expectations are that low, we’ll take it. Pfizer (PFE) 📈6.1% - Bill Gates’ microchip delivery firm—I mean *Pfizer (damn autocorrect) got a much-needed win yesterday, beating earnings estimates across the board. - EPS of $0.82/sh smashed estimates for $0.52/sh while sales of $14.9bn while sales beat by almost 7%. Sales were still down 20% from Q1’23, however. - C-19 vax sales fell 88% while Paxlovid—vax pills—fell 50%. But, strong guidance was reaffirmed despite Pfizer being the only firm in the world that missed the pandemic more than Anthony Fauci. What's Rotten 🤮 Starbucks (SBUX) 📉15.9% - A distinct shortage of daddy’s money is finally hitting food and drink services, and Starbucks is our first big victim. A weak Q1 across the board tanked shares. - Starbucks reported EPS of $0.68/sh on $8.5bn in sales vs the $0.79/sh on $9.1bn estimate. The swing and miss is largely due to a 4% drop in same-store sales. - Traffic decreased 6% and execs slashed 2024 guidance too. Might be time to pivot to asset management given their billions in stored customer cash via the company’s reward program. Chip Stocks (SOXX) 📉3.4% - The tough thing about “bubbles” is that it doesn’t take a lot of force to make ‘em pop. SMCI and other chip stocks learned that the hard way on Wednesday. - Sales grew 187%, while adjusted EPS grew 307% from Q1 of last year (not typos). But that wasn’t good enough for analysts despite beating estimates. - Gross margins slipped from Q4, sending shares lower. The reaction to this and AMD’s in-line earnings took down other chip stocks like Nvidia and Broadcom. Thought Banana 🤔 Insecure Consumers Shoutout to MindMed and a way chiller drug regulatory complex in the U.S. because not only will plenty of consumers need their LSD-based anxiety medicine soon enough, it seems like all $28tn of the U.S. economy will, too. On Tuesday, the conference board released its latest survey on how consumers feel about the economy. Or really, how they think they feel. As if economists (or anybody) know anything about the economy, we’re just glad the Conference Board is spending our tax dollars asking a population that can’t spell GDP what they think about our macroeconomic condition. Anyway… The Numbers [Source]() Consumer confidence fell in the U.S. in April, marking the third month in a row of declines. April’s reading of 97.0 is the lowest we’ve seen since July 2022 and marks a 5.9% decline from the downwardly revised March reading of 103.1. Consumers are insecure and anxious. For once, I’m not the only one ready to call my parents. But this isn’t even the worst part of the report. Diving into this “survey,” we can see that the Expectations Index declined from 74 in March to a rancid 66.4 in April, a 10.2% decline. Historical trends suggest that anytime this reading falls below 80, it’s flashing red, capital “R” recession indicator. = [Source]( But as we can see, we’ve been below 80 several times in the last few years, and I haven’t had to run to my bunker once. The issue comes down to the spread between the black/dark blue Present Situations index (sorry, I’m colorblind) and the light blue (I think?) Expectations index. When we expect our future to be way worse than now, we can accidentally make it happen. Plus, the last time expectations were this low, we were either in or attempting to pathetically crawl out of the GFC… definitely not the vibe we’re looking for. The Takeaway? Although consumers tend to know less about the economy than they do about what they did after 10 pm during that last weekend of college, the overall point is that consumers are nervous. And although we have no idea what the hell we’re talking about as consumers, we do, unfortunately have the power to shape our own destiny. Thankfully, our spending hasn’t tracked this mass depression (yet), indicating that how we actually feel—measured by our dollars—is very different than how we think we feel—measured in this survey. Let’s just keep those fingers crossed. 💭 The Big Question 💭: What is your current outlook on the economy? Is everyone already heading for their bunkers or are yall vibin’? What’s it gonna take for everyone to feel better about expectations for the future? Banana Brain Teaser 💡 Previous 🗓 Greg assembles units of a certain product at a factory. Each day he is paid $2.00 per unit for the first 40 units that he assembles and $2.5 for each additional unit that he assembles that day. If Greg assembled at least 30 units on each of two days and was paid a total of $180.00 for assembling units on the two days, what is the greatest possible number of units that he could have assembled on one of the two days? Answer: 56 Today 🕐 Al and Ben are drivers for SD Trucking Company. One snowy day, Ben left SD at 8:00 am heading east, and Al left SD at 11:00 am heading west. At a particular time later that day, the dispatcher retrieved data from SD’s vehicle tracking system. The data showed that, up to that time, Al had averaged 40 miles per hour, and Ben had averaged 20 miles per hour. It also showed that Al and Ben had driven a combined total of 240 miles. At what time did the dispatcher retrieve data from the vehicle tracking system? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” — Jesse Livermore How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh](=) 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]() // [WSO ALPHA]( // [ACADEMY]( // [COURSES]( // [LEGAL]() [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353